MD253/MK252Electronic Commerce

Jan. 25, 2006

Distribution Channels: Disintermediation

Topics Covered

• Collapsing Channels– Failures & successes– the role of value gaps

• Firms ‘changing the channel’– Expedia & the travel industry– BlueNile & the jewelry industry– NetFlix & the movie industry

Source: Benjamin & Wigand (SMR)

Price

Unit Sales

Producer Wholesaler Retailer Consumer

Producer Wholesaler Retailer Consumer

Producer Wholesaler Retailer Consumer

Price/Shirt Savings

$52.72

$41.34

$20.45

0%

28%

62%

Disintermediation

Value Gaps

customersretailerdistributorsource firm

Value Added = A,Expense = X

Value Added = B,Expense = Y

Expense Savings = (X+Y) - Cost of New EffortValue Gap = (A+B) - Value Added by New Effort

The Long Tail

Source: Wired

Revenue sharing for DVDs

Source: Video Rental Developments & the Supply Chain: Netflix Inc., WUSTL.EDU casehttp://www.olin.wustl.edu/workingpapers/pdf/2004-03-225.pdf